Understanding Your Loan
Principal vs Interest
- Principal: The original amount borrowed
- Interest: The cost of borrowing money
How Amortization Works
In the early years of a loan, most of your payment goes toward interest. Over time, the interest portion decreases and more goes toward principal.
For a $300,000 mortgage at 6% for 30 years:
- Month 1: $1,500 interest, $299 principal
- Month 180: $978 interest, $821 principal
- Month 360: $9 interest, $1,790 principal
Tips to Save on Interest
1. Larger Down Payment: Reduces principal and may eliminate PMI 2. Shorter Term: 15-year loans have lower rates than 30-year 3. Extra Payments: Even $100/month extra saves thousands 4. Refinance: When rates drop significantly below your current rate
Types of Loans This Calculator Works For
- Mortgages (fixed-rate)
- Auto loans
- Personal loans
- Student loans
- Business loans